Walmart-Flipkart deal: Who stands to gain more?

Over a week ago, Walmart announced it will indeed buy a majority stake in India’s Flipkart e-commerce company, upping the heat on rival Amazon. The retailer said it would dish out US$16 billion for a 77% stake in the company. The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings, Tiger Global Management LLC and Microsoft Corp.

While the immediate focus will be on serving customers and growing the business, Walmart supports Flipkart’s ambition to transition into a publicly-listed, majority-owned subsidiary in the future. In a press statement, Doug McMillon, Walmart’s president and chief executive officer, said India was one of the most attractive retail markets in the world, given its size and growth rate.

“Our investment is an opportunity to partner with the company that is leading the transformation of e-commerce in the market. As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market,” he said, expressing excitement in working with Tencent, Tiger Global and Microsoft – all of which will be key strategic and technology partners.

“We are confident this group will provide Flipkart with an enhanced strategic and competitive advantage. Our investment will benefit India, providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”

Bansal, Flipkart’s co-founder and group chief executive officer, added the investment “is of immense importance” for India and will help fuel ambition to deepen the connection with buyers and sellers and “to create the next wave of retail in India”.

“While e-commerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey, and we look forward to working together in the years ahead to bring our strengths and learnings in retail and e-commerce to the fore,” he said.

According to Forrester Data, the Indian online retail market was about US$20 billion in 2017 (2.4% of the total retail market in India), which is still relatively small when you compare it with the penetration in other mature markets. The upside is big for both Amazon and Flipkart in the next two decades.

“No other market except China and US can compete in terms of total retail opportunity. We expect the online retail market in India to reach $73 billion by 2022 from $20 billion in 2017,” said Satish Meena, senior forecast analyst at Forrester.

He added that to reach the next 100 million buyers, both Amazon and Flipkart will have to invest billions of dollars in warehousing, last-mile delivery, and ensuring  they provide quality products at low prices.

“This is a time-consuming process and both these companies need patient capital to capture the online retail opportunity. For customers, the entry of Walmart is good news as they will get the best deal through competition between these companies,” he said.

Going forward, he added: “We should also expect investment from Amazon in an offline grocery player in India once this deal between Flipkart and Walmart is finalised.”

Who stands to gain?

Given Walmart has been looking to get into the India retail market for more than 15 years, but faced FDI regulation issues, Meena added this was a win for the brand.

In the past, the company has tried to enter via a wholesale model with Bharti in India, but failed, he added. Now it sees online as the only method to enter the India market, which leaves Flipkart as the best investment option for Walmart.

He added that for Flipkart, this deal is more than just money given the company already has SoftBank as a backer. As such, to remain the number one player in India (Amazon coming a close second in just four years in India), Flipkart is looking to expand beyond smartphones and fashion.

“This deal with Walmart can provide Flipkart the expertise of running offline stores, access to sellers and manufacturers, supply chain and the know-how to get into the grocery segment,” he said.

“Amazon has been selling grocery in India for the past one year, while Flipkart has not rolled out this category. With Amazon closing the gap in categories other than fashion, Flipkart needs Walmart to remain competitive in the long term.”

Raunak Mehta, head of e-commerce strategy and consulting at Publicis Media Asia Pacific, said the deal, along with various other deals such as the ones between Alibaba and Lazada, asserts the importance Asia is playing in the world of e-commerce.

This also has to do with the pace at which e-commerce is growing in Asia, and how a burgeoning middle class is adopting e-commerce as a medium for getting access to brands and services which were not available in the past.

“We are increasingly seeing brands across electronics, fashion and beauty verticals consider e-commerce as a strategic channel and leveraging Publicis Media commerce to accelerate their e-commerce journey in terms of both customer management (acquisition to retention) and e-content optimisation with multi-dollar investments,” he said.

He added Walmart had been on an acquisition spree since mid-2016, and acquiring a majority stake in Flipkart would rank among its top deals.

The deal will give an international extension to the US-centric retail war between Amazon and Walmart. While the deal gives a direct-to-consumer platform to Walmart, it brings with itself more than 100 million active users, 100,000 sellers and a logistics arm that has the capability to deliver to any part of India.

On the other hand, for FlipKart, there will be an immense focus on extracting more from retail operations with Walmart on-board.

“Walmart is known for its unflinching approach towards driving efficiency which would enable Flipkart to streamline operations and bring about an improvement in margins,” Mehta said.

“Also, Walmart is known for having very strategic partnerships with brands in terms of both exclusive and non-exclusive merchandise – this will definitely lead to better brands with better terms and help Flipkart Fashion in ramping up its private label business.”